Promote Andean Free Trade But Limit Preferences

In 2004,
the United States began negotiating free trade agreements (FTAs)
with Colombia, Peru, Bolivia, and Ecuador. These were intended to
replace the limited, temporary preferences granted to certain South
American countries under the Andean Trade Promotion and Drug
Eradication Act (ATPDEA). Peru and Colombia have signed bilateral
trade pro­motion agreements with the United States, but Bolivia
and Ecuador have not, asking instead that one-way preferences be
extended.

While
there is a window of opportunity, the U.S. Congress should act
quickly on the signed FTAs to lock in long-term benefits for the
U.S. and its prospective trade partners. Congress should also
promote a provisional extension of preferences to help Bolivian and
Ecua­doran FTA negotiations to advance in good
faith.

Background.To
accompany counternarcotics aid, the U.S. Congress passed the first
Andean trade pref­erences in 1991 to promote sustainable
economic alternatives to coca and opium poppy-crop produc­tion,
as well as to strengthen the legitimate economies of Andean
countries. Congress claims that these pref­erences have
expanded employment and business opportunities. Two-way commerce
with the subre­gion has doubled, with the United States serving
as the leading source of imports and as the leading export market
for each beneficiary country.

Thinking
a hemispheric Free Trade Area of the Americas (FTAA) pact might be
concluded by 2005, Congress approved a four-year extension of
Andean trade preferences in 2002. These prefer­ences allow
duty-free importation of footwear, petroleum, leather goods, and
certain apparel but will expire at the end of the year. In 2004, as
progress on the FTAA stalled over U.S. and Brazil­ian
agricultural subsidies, the U.S. Trade Represen­tative
initiated bilateral free trade talks with Colombia, Peru,
Ecua­dor, and Bolivia.

A Closing
Window of Oppor­tunity.Only Peru
and Colombia have concluded negotiations and signed bilateral
FTAs-but at some cost to their political lead­ers. Peru's
unicameral Congress approved the pact, while candidates in the
coun­try's 2006 elections campaigned against it. Now incoming
President Alan García has embraced it and built popular
support by calling it a "free trade agreement for the poor,"
pledging to accompany lower tariffs with competitive reforms. In
Colom­bia, polls still show support for approving an FTA,
though it is weakening over time, even as the gov­ernment
pursues FTAs with four European nations and Chile. These two
opportunities to open mar­kets and consolidate reforms will not
last and should therefore be secured promptly.

Elsewhere,
support for free trade is under assault as Venezuelan President
Hugo Chávez aids anti-mar­ket autocrats in neighboring
nations. Bolivia had been interested in a bilateral FTA until
Chávez ally Evo Morales was elected president in 2005. Since
then, Morales has signed a cooperative aid agree­ment with
Venezuela and Cuba, has announced the nationalization of the
natural gas industry, and has called an assembly to rewrite the
constitution to give himself greater powers-thus rolling back
reforms that had produced 10 years of modest growth for Bolivia's
tiny $8.9 billion economy.

Ecuador, too,
now marches toward a statist econ­omy. In May, the government
seized oil fields oper­ated by multinational Occidental
Petroleum Corporation following a contract dispute.
Presi­dential contender Rafael Correa has promised to forge
cooperative links with Venezuela and Cuba and to rewrite Ecuador's
constitution as well. Inter­viewed in September on Ecuador's
Channel 8 TV, he labeled the U.S. President "dumb" and said that
"calling him the devil offends the devil." Correa took second place
in the first vote on October 15 and will face trade-friendly
industrialist Alvaro Noboa in a runoff election on November
26.

Forge
Ties, Help Friends.The U.S.
Congress should act on the Peru and Colombia FTAs at once. These
countries are strong U.S. allies and have worked hard with American
negotiators to trans­form a mere one-way preference
relationship into a full-scale trade agreement. Eliminating trade
barri­ers will consolidate and deepen economic and political
ties; and FTAs, as two-way instruments, will open markets to U.S.
goods, services, and investment. Both Peru and Colombia have
cooper­ated in the fight against drug traffickers and
terror­ist groups. Colombia's National Police even offered to
send counternarcotics experts to help Afghani­stan improve its
anti-drug efforts. Peru has sent peacekeepers to help stabilize
Haiti's return to elected rule.

Boliviaand
Ecuador are a different matter. Presi­dent Morales has already
reversed market reforms and scaled back counternarcotics
cooperation, while a Chávez-style demagogue runs for office
in Ecuador. Still, Morales does not control the current Congress,
may not prevail in rewriting the consti­tution, and faces
vigorous internal opposition. In Ecuador, a pro-market candidate
could yet be elected president.

Besides
swift movement on the U.S.-Peru and U.S.-Colombia FTAs, Washington
should permit a two-year extension of trade preferences to Bolivia
and Ecuador as a bridge to conclude bilateral free trade pacts, to
be enforced only if both govern­ments negotiate in good faith
and cooperate in reducing drug trafficking. If they choose not to
do so, then preferences would lapse-the snub being clearly theirs,
not ours.

Conclusion.Free
markets are slowly replacing what was once a near-monolith of
import-substitu­tion economies and net aid consumers in the
West­ern Hemisphere. Joining Canada and the United States are
Chile, Mexico, the Dominican Republic, Central American trade
partners-and, it is hoped, Peru and Colombia. Governments aligning
them­selves with Venezuela and Cuba are choosing to remain in
the past, dependent on oil assistance from Hugo Chávez and
security details sent by Fidel Castro. U.S. congressional action
can extend the reach of free markets in the region, but inaction
would encourage fence-sitting neighbors to join Venezuela's aid
club.

Ana Isabel
Eiras is Senior Policy Analyst for International
Economics in the Center for International Trade and Economics, and
Stephen Johnson is
Senior Policy Analyst for Latin America in the Douglas and Sarah
Allison Center for Foreign Policy Studies, a divi­sion of the
Kathryn and Shelby Cullom Davis Institute for International
Studies, at The Heritage Foundation.

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Congress should act quickly on bilateral free trade agreementssigned between the United States and allies Peru and Colombia. Suchagreements benefit the economies of all partners and enhance agrowing free trade bloc. Extending trade preferences for a shorttime to Bolivia and Ecuador could sustain market openings whileleaders decide on permanent reciprocal agreements.

Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."

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